Options trading is poised to overtake the stock market

Fueled by a cocktail of slick trading apps and social-media hype, retail trading has soared since competition between brokerages squashed commissions in 2019.

Stocks were the focus initially. But these days much of the excitement appears to be in options, which offer a cheap way for traders to bet on a stock going up or down in price without having to actually purchase the shares.

By one measure, options activity in the US is on track to exceed that of the stock market for the first time: The average daily notional value of traded single-stock options has risen to more than $450 billion this year, compared with about $405 billion for stocks, according to Cboe Global Markets data.

The notional value is the trading volume multiplied by the spot price.

Make no mistake—institutional investors are still heavy hitters in options contracts, which give traders the right, but not the obligation, to buy or sell an asset at a certain price.